Guides
What is a China WFOE?
WFOE means a Wholly Foreign-Owned Enterprise: a Chinese limited liability company that can be 100% foreign-owned. Types, business scope, and how WFOEs compare to JVs and ROs.
WFOE stands for Wholly Foreign-Owned Enterprise and in the concept of a China WFOE means a Chinese limited liability that can be owned 100% by foreign investors. The WFOE law and framework was first established in China in 1986 and has been revised numerous times to accommodate China’s ever evolving business environment.
Initially WFOE companies were for the most part set up primarily for manufacturing in China and exporting products; today WFOE companies are established for various types of activities in China.
When a WFOE company is established it must be registered with a business scope which defines the activities it can conduct in China.
Three main types of WFOEs
There are three main types of WFOE companies that are often established today: Manufacturing WFOEs, Consulting WFOEs, and Trading WFOEs.
Manufacturing WFOE
A Manufacturing WFOE is able to manufacture products in China. The type of products manufactured need to be declared during the WFOE registration process and will be listed on the WFOE business license. Manufacturing WFOEs will also need to apply for various other licenses to operate in China; this will include an additional import/export license.
Consulting and service orientated WFOEs
Consulting and service orientated WFOEs are only permitted to provide services in China. They are not allowed to manufacture products, import or export products, or conduct any sales or retail operations in China. Consulting WFOEs are often established to provide marketing services, business consulting, or education and training services.
Trading WFOE
Trading WFOEs are able to trade products. The product types must be included in the WFOE’s business scope when being registered; if the trading WFOE also wishes to manufacture products in China it must be stated in its business scope. Trading WFOEs are more heavily regulated than Consulting WFOEs but require fewer licenses than a Manufacturing WFOE.
Changes to business type and scope
A China WFOE can change and amend its business type and business scope, but the process to do so can be complicated and is handled on a case-by-case basis.
Alternatives: JV and Representative Office
Alternatives to WFOEs also exist: JVs (Joint Ventures) and ROs (Representative Offices). These two additional types of structures are less common than WFOEs and in most cases provide less security for the foreign investor and are further restricted on the activities that they can conduct.
Examples in practice
Many well-known foreign companies operate under a WFOE structure in China, including Tesla (the first WFOE car factory in China), Intel Products (Chengdu) Co., Ltd. (Manufacturing WFOE), and Apple Computer Trading (Shanghai) Co., Ltd.
Some foreign companies choose to establish both a JV and a WFOE to take advantage of both structures.